S.E.C. Weighs Suit Against Netflix Over Improper Disclosure
By MICHAEL J. DE LA MERCED
DealBook
New York Times
December 6, 2012, 5:53 pm
Netflix has stirred up the ire of its customers with controversial business decisions before. But a seemingly innocuous post by the online video company’s chief executive on his Facebook page may have gotten him hot water with regulators.
Netflix disclosed on Thursday that the Securities and Exchange Commission has sent both it and its chief, Reed Hastings, so-called Wells notices, indicating that the agency may file civil lawsuits against them.
The Wells notices, according to the company, are tied to information that Mr. Hastings disclosed in a Facebook post on July 3 about the one billion hours of video that subscribers watched through the service the previous month.
Shares in Netflix were down 1.3 percent in after-hours trading on Thursday, at $85.02.
What was behind the S.E.C.’s move, according to (what else?) a new Facebook post by Mr. Hastings, was a concern that the post violated the agency’s “fair disclosure” rules. According to securities rules, information that could be material to a company’s business should be made available to all investors, usually through a news release or a regulatory filing. The rule is meant to prevent selective disclosure of important information.
But Mr. Hastings argues that he has a few defenses. One is that he disclosed the information fairly broadly: his Facebook feed is publicly viewable and has more than 200,000 subscribers. Moreover, the specific post was shared by some of those followers, and the information was subsequently reported by several media outlets.
Another defense is that Netflix simply didn’t view the information as material. In Thursday’s post, Mr. Hastings wrote that, several weeks before the Facebook message in question, the company had announced on its corporate blog that it was serving nearly one billion hours of video a month.
And while Netflix’s stock rose on July 3, it was already getting a rise from a positive analyst note published the night before, according to Mr. Hasting’s latest post.
“We remain optimistic this can be cleared up quickly through the SEC’s review process,” he wrote.
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